is often affected by share buybacks. Part of their rewards may be tied to their ability to meet earnings per share targets. Moreover, all share buybacks enhance the value of promised shares in their share incentive schemes. Bhargava reported that stock options exercised by top executives increase future share repurchases by U.S. firms. Higher share repurchases, in turn, significantly lowered the research and development expenditures that are important for raising productivity. Further, increasing earnings per share does not equate to increases in shareholder value. This investment ratio is influenced by accounting policy choices and fails to take into account the cost of capital and future cash flows which are the determinants of shareholder value. Safeguards should be in place to ensure that decisions about share buybacks are not motivated by their effect on executive or managerial reward. Earnings per share targets need adjusting to take out the financial leveraging effect of the buyback and similarly share incentive schemes need adjusting to neutralize unwarranted enhancement. Share repurchases avoid the accumulation of excessive amounts of cash in the corporation. Companies with strong cash generation and limited needs for capital spending will accumulate cash on the balance sheet, which makes the company a more attractive target for takeover, since the cash can be used to pay down the debt incurred to carry out the acquisition. Anti-takeover strategies, therefore, often include maintaining a lean cash position and share repurchases bolster the stock price, making a takeover more expensive. Tax-efficient distribution of earnings Share repurchases also allow companies to distribute their earnings to investors without resulting in immediate taxation on capital gains. For example, if a company were to pay $100,000 in dividends on one million shares or as 10¢ dividend per share, investors may incur tax upon this disbursement. This means that instead of receiving 10¢ of earnings per share, they receive 8.5¢ (.10×(1 − .15)) at a 15% tax rate with 1.5¢ going to the government. An investor with 10 shares will receive 85¢ and the government collects 15¢. As the company has to pay out this money the share price drops accordingly, from $10 to $9.90, so the investor with 10 shares now has $99 + 85¢ dividend, or $99.85. Of course, investors will not necessarily respond to a dividend payment by selling off shares and reducing share price; while the payment of the dividend technically reduces the company's book value, the